Donald Coxe – Investment Recommendations (June 2009)

The June edition of Donald Coxe’s Basic Points research report (subtitled “Who Will Really Lead the Global Rescue?”) has just been published. His investment recommendations, as summarized in this document, are listed in the paragraphs below, but I do recommend you also read the full report at the bottom of the post. (Also note that Donald’s weekly webcasts can be accessed from the sidebar of the Investment Postcards site.)

1. The current US equity rally shows signs of needing a summer rest. But it will not fall back into the Slough of Despond. This is a cyclical bull market within a structural bear market – until proven otherwise. What it most needs now is a lift from the bank stocks – and from sharply rising volume on days the market rises sharply, and from falling volume when it falls. It has been getting none of the above.

2. Remain overweighted in the commodity stocks, and remain diversified among the four commodity groups. Leadership will rotate from week-to-week, but all four groups are showing good strength relative to market indices.

3. We hope we are right that gold-related investments will be rewarding, but will likely underperform other commodity-related investments in the next few months. That means the global economic recovery was proceeding without setting off inflationary sparks. Thereafter, concerns about the dollar and the effects of the all-out reflation programs will once again boost demand for gold.

4. The dollar has attracted fundamental criticism from one of its largest holders – the Chinese. They have also transformed their Treasury holdings by buying bills and selling notes and are well on their way to becoming a demand depositor at the Fed. By forgoing nearly all the interest they could earn, they are telling investors that we should be concerned about the dollar. Believe those who back their bets against the buck so big.

5. The Canadian dollar remains undervalued relative to the greenback. Canadian companies should emulate Teck: borrow, where possible in US dollars. Canadian equity investors should shop at home first, then look for US bargains.

6. Keep bond durations low. We have entered a bond bear market at a time of a declining dollar. That has historically been a lethal combination.

7. Do not join the all-out bears on America. The American economy is more resilient than the gloomsters believe. It can even survive the wounds inflicted on it by the Wall Street-Fannie-Feddie-Frank follies – and the Pelosi-Obama programs. Nevertheless, there are now some better investment alternatives elsewhere—across the Pacific and above the 49th Parallel.

Don Coxe is truly the doyen of market commentators. His cadence, his vocabularly and historical references are always just a pleasure to read. I just wish he could conceal his political affiliations a bit more. To blame Obama for this fiscal mess is taking liberties. In his latest report he states that “the fiscal deficit was 42% of GDP at the end of 2008 but is set to rise to 82% in the next 10 years”.

While probably correct technically, his clear implication is that this is due to the new administration’s poor fiscal management of the economy. This assumes his readers are rather naive. Very few readers, I surmise, are oblivious to the economic and financial collapse that occurred in 2007/08 leading to the massive bailout, TARP etc that was dumped into the new administration’s lap.